WSJ: Singapore Inc. Needs a Rethink, Economists Say

[carteki]

http://blogs.wsj.com/searealtime/2012/0 ... mists-say/

Hasn't made the SG press yet as far as I can see. The article is based on research from NUS.

[JR8]

I managed to get through page 10/40 of the underlying research piece.

It is a remarkably socialist work. The words redistribution and progressiveness come up every paragraph or two. The authors are patently ardently against 'small state' and low-tax.

What I find of interest is these kind of think-tank papers back in Europe are often funded by political parties/interests. The parties then use then as 'positioning papers' on which to base future policy.

It's the first time I think I've read such a document emanating from Singapore. As a commenter in the WSJ article notes, it's clearly been pre-cleared [if not initiated] by the state.

I am left wondering why.

[Strong Eagle]

Singapore really does have a widening income gap between rich and poor, and I am a believer in some sort of social safety net.

Having said that, most of Singapore's ills are the result uncontrolled rise in the price of property, much of which is fueled by outside speculation.

Not only is the actual cost of housing affected for those just starting out and for those of middle income, the cost of everything else goes up as well, just to pay the rents required for retail outlets, offices, and warehouses. The ability to live reasonably well on a meager income is being squeezed out of Singapore due to rising real estate costs.

It's the banks and a failed government real estate policy that thought excluding HDB's, landed properties, and shop houses from foreign investment would somehow insulate the overall market from sharp rises. And now that we are in this untenable situation, one mustn't dare allow much of a drop in values, lest the mortgages held by the banks turn upside down.

[teck21]

Yes, it was interesting to read Ho Kwon Ping's interview in the paper today regarding the issue of wage disparity in Singapore.

On how Singapore had a two-track wage economy whereby there existed an international well-paid one, and a poorly-trained and poorly-remunerated domestic economy.

He pointed out that Singapore's wage disparity between the well-off and the less well-off was even more pronounced than a country like Hong Kong, with many similarities to Singapore.

It is this living standard disparity I believe which drives a lot of unhappiness in Singapore (and every other capitalist economy for that matter, but the issue seems much more pronounced here compared even to these other developed capitalist economies).

After all, wanting to keep up with the Jones is a very human attribute, and a very unfortunate one.

So to reduce the income gap, either wages at the top need to fall (I do not include ministerial pay in this!), or wages at the bottom need to rise.

Former case is unlikely to say the very least, so the government needs to boost the income level of the bottom rung.

How exactly they will achieve this I'm not sure, PM Lee's commitment to helping develop Johor with presumably commensurate benefits for Singapore should be something that factors into their calculations. I just cannot see what the real tangible benefits are.

With regards property SE, I would not blame the government for failing to control prices. Everyone loves to 'speculate to accumulate', whether rich or poor. Property simply seems to be the instrument of choice for most.

It's in human nature. And also in human nature to be convinced that the government will not allow property prices to decline or nosedive. Clearly these people have never looked at charts.

For starters, I think the Singapore government should put an end to the practice of allowing CPF to be used for the purpose of property purchases. It merely creates the illusion of wealth creation.

[zzm9980]

For starters, I think the Singapore government should put an end to the practice of allowing CPF to be used for the purpose of property purchases. It merely creates the illusion of wealth creation.

But wouldn't this utterly destroy the "less well-off"'s ability to purchase? If people can't make ends meet now, how will they swing a mortgage when 20% tax-free (plus a match of 17%) of their income that used to cover that payment now cannot? CPF would need to be entirely re-designed.

[teck21]

But wouldn't this utterly destroy the "less well-off"'s ability to purchase? If people can't make ends meet now, how will they swing a mortgage when 20% tax-free (plus a match of 17%) of their income that used to cover that payment now cannot? CPF would need to be entirely re-designed.

Hmm, I was clearly not thinking of them, but perhaps CPF really does need a rethink.

It appears to me the wealthy don't need it, and it does squat for the poor.

[carteki]

Having said that, most of Singapore's ills are the result uncontrolled rise in the price of property, much of which is fueled by outside speculation.

It is? Everything that I've read seems to point to the opposite. Bad planning on behalf of the govt, general worldwide property prices increases, ethnic considerations. Yeah, foreigners are buyers of property, but % wise they are not the largest %.

And the high cost of cars (via COE?) Also foreigners doing? Was chatting to someone from HK - where there is literally no option for govt subsidised housing and they don't seem to have the traffic problems that SG has (his view). His take on this was because the locals don't have subsidised housing they can't afford to buy cars.

[zzm9980]

And the high cost of cars (via COE?) Also foreigners doing? Was chatting to someone from HK - where there is literally no option for govt subsidised housing and they don't seem to have the traffic problems that SG has (his view). His take on this was because the locals don't have subsidised housing they can't afford to buy cars.

Anecdotal, I do find the perceived need by so many locals that they must have a car (kiasu?) mind-boggling. Especially when so many foreigners show up (likely) making significantly more salary are just too happy to give up their cars.

[teck21]

Anecdotal, I do find the perceived need by so many locals that they must have a car (kiasu?) mind-boggling. Especially when so many foreigners show up (likely) making significantly more salary are just too happy to give up their cars.

Agree, HK just simply does not have a car ownership culture. I notice that a lot of the cars there are luxury makes (and I understand that cars there are in fact substantially cheaper than in Singapore), which implies that most people simply choose not to drive unless they have attained a caertain income level, currently still presumably on the high side.

Likewise in Singapore, except the bar is set so low that young people rush out to buy a car the moment they can afford the downpayment (or sometimes not even) even if they have to pay till their noses bleed just to own it.

Part of the 5C's culture that was hotly debated in the press years ago (like how the heartlander issue was discussed hotly for a few months before vanishing into thin air): condominium, credit card, cash, car and career(?).

Part of it also has to do, I hear (hear only!) with the fact that a former leader of this country didn't give a hoot about public transport, and was in fact disdainful of it, encouraging car ownership instead.

So a big part of public transportation woes today have much to do with the years of neglect back then.

Interestingly, unrelated to cars, I just read in trashy afternoon lunchtime paper an article in which some academic said that for many young people, the use of CPF to buy HDB properties has in fact reduced their available CPF funds for retirement very substantially because many choose to buy the biggest and most expensive they can afford (to be paid out of CPF, so they can use their cash to buy cars they don't need).

And by retirement age, there's in fact very little money in their CPF accounts. And for a variety of reasons, a mixture of legitimate and not so legitimate, one cannot expect everybody then to monetize their home for retirement by taking a reverse mortgage, downsizing or renting out rooms.

And imo, if that's the only way to monetize one's only real asset (and for many this will be their only real asset) , it's not much of one.

[zzm9980]

And imo, if that's the only way to monetize one's only real asset (and for many this will be their only real asset) , it's not much of one.

I'll agree with that completely also. There was recently some stories about Singapore having the highest number of millionaires per capita or some crap like that. I wonder what the real number would be if we didn't count "HDB rich". Plus, if I understand correctly, once an HDB is 50 years into it's lease, you cannot obtain a mortgage for it on the resale market. Aren't a lot of units going to come up on that in the next 10+ years? (My estate is over 30 years old). The resale market should crash when that happens.

[JR8]

And imo, if that's the only way to monetize one's only real asset (and for many this will be their only real asset) , it's not much of one.

I'll agree with that completely also. There was recently some stories about Singapore having the highest number of millionaires per capita or some crap like that.

Makes a headline for a lazy journalist, but any reputable measure I have seen of wealth excludes the value of your principal home.


I wonder what the real number would be if we didn't count "HDB rich". Plus, if I understand correctly, once an HDB is 50 years into it's lease, you cannot obtain a mortgage for it on the resale market. Aren't a lot of units going to come up on that in the next 10+ years? (My estate is over 30 years old). The resale market should crash when that happens.

I've pondered this one. They're going to have to start offering lease extensions (paid for out of CPF). This might only be raising it's head now given when HDB and 99 year leases commenced en masse. You can't have swathes of the market unmortgagable, And you can't have Great-granny Chang unable to downsize because her 45 year remaining lease is not marketable.

Furthermore when leases get down to zero, you can't throw the lifelong owners out on the street. Not a good headline for the gahmen!

The gahmen control land, land released to developers, and much of the policy surrounding how people buy and sell property. As I have said previously I am sure the gahmen have not been terribly displeased (cough) to see prices rising year in year out. Because people, irationally you could argue, feel they are getting richer if their home is getting more valuable. Even if every other property is also getting more valuable and they have to have somewhere to live. People who feel their financial wellbeing grow year by year are most disinclined to rise up in protest against their government. Handy eh?

Perhaps it is ironic that we are in a situation, where it could be argued so many people are being kept on-side through rising property prices, that there is forming an underclass who feel they will never get to participate in the 'free-money carroussel'. I actually do not believe everyone has a right to own their own home (after all, what gives them such a right?), but these people nurse a grievance, and grievance can lead to unrest and protest. Not so handy for the gahmen!

p.s. I am not a fan of the Gini coefficient.
a) To me it’s use suggests that moving towards total equality is a desirable goal. To me it equates to moving towards an ultimate end-point of the inevitable death of any kind of functioning society.
b) That paper quoted is not academic, and hence not rigorous. I found it quite, let’s say ‘hastily put together’ (refer some of the graphics axes ex: ‘From about mid 1996 to 2004’).
c) By definition SG is going to have a relatively high Gini Coeff because it has stacks of imported Banglas earning peanuts, and at the other end imported FT and regional wealth exiles. NOW, if you could strip those out of your sample, and look at wealth distribution amongst SGns, that might tell us more.

As I said before, the more interesting question for me is why the government presumably facilitated this highly political paper being published.

[carteki]

As I said before, the more interesting question for me is why the government presumably facilitated this highly political paper being published.

To be seen to be giving the masses what they want, rather than actually doing so?

[JR8]

To be seen to be giving the masses what they want, rather than actually doing so?

I'm not sure the bottom 10% are reading geeky political papers.

[carteki]

It did make the Today paper - nothing special though and no insight...

[JR8]

It did make the Today paper - nothing special though and no insight...

Maybe that's a geeky politicians plan to get the proles to take notice.... hehehe

p.s. wouldn't it be sort of weird, if this unparalleled paper comes out, AND no other journalist or academic dares make material comment upon it...